Determinants of bank credit in Ghana

A bounds-testing cointegration approach

  • Gideon Baoko University of the Witwatersrand
  • Isaac Attah Acheampong Presbyterian University College, Ghana
  • Muazu Ibrahim Garden City University College, Kumasi, Ghana
Keywords: Bank credit, ARDL cointegration, Real lending rate, Bank deposit, Ghana

Abstract

Using the Autoregressive Distributed Lag (ARDL) framework, this paper
examines the relevant factors influencing allocation of bank credit to the private
sector in the Ghanaian economy for the period 1970 to 2011. The results show
that broad money supply, bank assets, real lending rate, and bank deposits are
significant determinants of bank credit in both the short and long-run. Inflation
also exerts significant positive impact only in the short-run. The study infers the
lack of successive governments’ commitment to pursue policies that boost the
supply of credit to the private sector. Our findings further reveal that increases
in deposits mobilization by banks does not necessarily translate into supply
of credit to the private sector. A plausible deduction from the findings is that
reduced government’s domestic borrowing, lower cost of borrowing, and lower
central bank reserve requirements for commercial banks in Ghana are needed to
stimulate higher lending and credit demand.

Author Biographies

Gideon Baoko, University of the Witwatersrand

Dr. Gideon Boako is a lecturer in finance at the Kwame Nkumah University of Science and Technology and a Technical Economic Adviser to the Vice President of the Republic of Ghana. He has MSc and MBA in Finance from the Kwame Nkrumah University of Science and Technology, and a PhD in Finance from the University of the Witwatersrand.

Isaac Attah Acheampong, Presbyterian University College, Ghana

Department of Business Administration

Muazu Ibrahim, Garden City University College, Kumasi, Ghana

Department of Accounting and Finance, Garden City University College, Kumasi, Ghana

Published
2017-11-13